If you have found yourself in a financial emergency, needing to pay for a large expense, or looking for a way to consolidate your debts, you may be thinking about applying for a loan.
With so many types of loans available on the market, it can be a little overwhelming to know where to start.
We have put together this guide on how to choose the right loan to help you in the right direction and find a solution that works for your situation.
What Do You Need The Loan For?
To begin with, it’s wise to think about why you want to secure a loan. Do you have a gap in your finances that you need to cover? Do you need to pay for a wedding? Have you got emergency car repairs to pay for?
Whatever the reason is, consider it carefully and decide whether a loan really is the best option. Consider using savings, personal borrowing, overdrafts, credit cards, or seek advice from the relevant financial services first.
If you have exhausted all other options, a loan may be able to help. Here is a look at the types of loans available and who they are designed for:
As the name may suggest, payday loans online are aimed at those who need to cover a short-term financial issue or purchase with the intention of repaying by their next payday.
This type of loan may carry higher interest rates than other loans, but typically offer a quick turnaround for emergency situations.
Personal loans can be used for a wide variety of reasons, such as paying for home renovations, a new car, healthcare, and more.
They offer a range of terms, from short to long, depending on your needs. They can be secured against an asset, which is a risk to the borrower, but it can result in lower interest rates.
Personal loans can also be unsecured with no risk of losing collateral, but potentially higher interest. Both types usually have a fixed rate and need to be repaid over a fixed term.
Bad Credit Loans
Bad credit loans are a type of personal loan, but they are based on affordability, rather than an applicant’s entire credit history.
Lenders will usually ask for proof of monthly income, essential outgoings, and any financial commitments to determine whether an applicant will be able to afford repayments.
This allows lenders to cater to a wider variety of needs, but many bad credit loans typically have high-interest rates.
A guarantor loan requires a third party to guarantee repayments if the original applicant defaults at any time. This is in place of the secured asset in a secured personal loan.
They can be useful for those with poor or no credit history who may have been turned away by other lenders.
Bridging loans are designed to ‘bridge the gap’ when you need to pay for something but are waiting for the funds to become available.
They can be used by people who want to purchase a property but are waiting for the sale of another property first. Typically, this type of loan will need to be secured against an asset, so there is a risk if you cannot repay.
While there are many loans to choose from, it is key to put your needs and circumstances first to decide what would work best.